Wall Street is currently gripped by a state of extreme, anxious division: on one side lies the brutal reality of Oracle's stock plunging 41% from its mid-September peak, while on the other, bulls are placing bets on a "stunning reversal" in the first half of 2026.
According to analysis, UBS explicitly stated in a recent report on January 4th that market panic stems from two core concerns: deep-seated distrust in OpenAI's perceived "bottomless money pit" and its ability to deliver, coupled with fears that Oracle's own balance sheet may not withstand its aggressive capital expenditure while maintaining an investment-grade rating. If investors believe OpenAI can successfully launch GPT-6 or secure a new round of massive funding by the first half of 2026, then Oracle, currently trading at just 34 times its CY27 price-to-earnings ratio, might represent a significant mispriced opportunity. Conversely, if OpenAI falters under the competitive pressure from Google's Gemini, or if Oracle is forced into equity financing that dilutes shareholders, the downturn is far from over. Although UBS lowered its price target to $280, it maintained a "Buy" rating, which is essentially a high-stakes gamble on "faith." The market's pessimism towards OpenAI has now peaked, primarily centered on ChatGPT's growth slowdown and the difficulties in monetizing the enterprise segment. UBS believes that to reverse the fortunes of Oracle (as its largest infrastructure provider), at least one of the following three events must occur:
Capital Injection (Most Direct): Media reports suggest OpenAI is seeking $100 billion in funding at an $830 billion valuation, with even Amazon and SoftBank reportedly queuing up to provide capital. If this funding materializes, the so-called "counterparty risk" would vanish almost instantly.
The Arrival of GPT-6 (Most Critical): Current model improvements are viewed by the market as incremental "tweaks." UBS argues that only a genuine step-function update (GPT-6) launched in Q1 2026 can quell doubts about Google's Gemini gaining a late-mover advantage.
Enterprise Story Materializes: Currently, 95% of enterprise AI projects remain in the "pilot" phase. 2026 must be the year enterprise AI, especially AI Agents, truly deploys at scale and generates revenue, proving that the hundreds of billions spent on computing power were not wasted.
In short, if OpenAI can secure funding or produce a groundbreaking new model, Oracle will thrive; otherwise, this resembles a game of hot potato. Investors' greatest fear is that Oracle, in its effort to support OpenAI's computing demands, might leverage itself into "junk bond" territory.
Skyrocketing Leverage: UBS predicts that, including lease liabilities, Oracle's net debt-to-EBITDA ratio could reach a staggering 4.0x by 2027. For a company committed to maintaining an investment-grade rating (currently S&P BBB, outlook negative), this is akin to dancing on the edge of a cliff.
Not Just Buying Chips, But Building Factories: Lease obligations have surged to $248 billion over the past two quarters. This isn't just money for Nvidia GPUs; it includes long-term data center lease contracts spanning up to 15 years. This means even if OpenAI can't pay, Oracle must still cover the rent.
Funding Gap: UBS estimates that from FY26 to FY28, Oracle faces a funding gap of approximately $82 billion.
Oracle's current strategy appears to be "now or never," but a mere flick of the wrist from rating agencies to downgrade its credit would increase financing costs and directly erode profits. Faced with immense funding pressure, Oracle has begun employing financial engineering tactics.
Bring Your Own Chips (BYOC): Management hinted on earnings calls about considering a model where clients (like OpenAI) purchase their own chips, with Oracle solely operating the data centers. While this alleviates balance sheet pressure, it implies lower margins and reduced revenue scale—a move interpreted by the market as "waving the white flag."
Off-Balance-Sheet Operations: Partnering with private credit firms for GPU sale-leaseback transactions. UBS believes that if 50% of funding needs are met this way, direct debt financing requirements could be halved to around $40 billion.
Wall Street despises uncertainty. Oracle's vague communication regarding specific financing plans—unclear at investor days and earnings calls—is a core reason behind the stock's sharp decline. Amid all the negative news, the super data center project in Abilene, Texas, stands as the sole concrete positive.
Ahead of Schedule: As of the end of the November quarter, 96,000 GB200 GPUs were already in place. This indicates the project is not delayed, as some rumors suggested, but is instead ramping up rapidly.
Revenue Engine Igniting: UBS estimates that as the Abilene project scales to 350,000 GPUs in Q1 FY26 (August), its annualized revenue contribution could approach $8.3 billion. This is the key driver enabling Oracle Cloud Infrastructure (OCI) revenue growth to accelerate beyond 80%.
This is Oracle's strongest card. If this project delivers on time and OpenAI pays on schedule, the short-seller thesis would be broken. Finally, let's assess whether this trade offers value.
Margin of Safety in a Pessimistic Scenario: UBS conducted a stress test showing that even under the assumption that OpenAI contributes zero revenue by FY30 (a disaster scenario), Oracle's current stock price implies a FY30 P/E of just 12.4x.
Discount to Microsoft: In contrast, Microsoft, which also faces OpenAI-related risks, trades at a FY30 P/E of 18x.
Oracle's current stock price (around $195) already prices in substantial pessimism—encompassing an OpenAI collapse, financing difficulties, and margin compression. Should any of the aforementioned risks see even slight alleviation (for instance, if OpenAI secures funding), it could be enough to trigger a sharp valuation rebound. This represents a classic high-risk, high-potential-reward moment.
